A Hawkish Fed Signals Higher Interest Rates Ahead

0:00So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM.

0:33Matt Grossman:The Fed holds rates steady, but officials' hawkish tone sense stocks sliding. Plus, Tim Cook tells the Journal that price increases on Apple products are, quote, unavoidable. And U.S. officials spell out the terms of the Iran peace deal. Iran is walking away, basically being paid to reopen the Strait of Hormuz with no significant hard commitments that it will make on the nuclear program and ballistic missiles. It's Wednesday, June 17th. I'm Alex Oseleff for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:16Matt Grossman:The Federal Reserve today held its benchmark rate steady between 3.5 % and 3.75%, as was widely expected. Officials were unanimous in that decision, but they hinted more strongly that their next move will be a rate hike. It was the first meeting led by new Fed chairman Kevin Warsh, and the central bank under him might look different. Change isn't easy, change is filled with risk, but our number one goal is to get monetary policy right. The way to get monetary policy right is to deliver on the remit that Congress gave us, to deliver on price stability. We'll get into those changes with WSJ economics reporter Matt Grossman, who joins us now.

1:53Matt Grossman:But first, Matt, the policy. The big news from today's meeting is that Fed officials seem to be leaning more towards a rate hike because of the worsening outlook on inflation. Would that be a big shift for Warsh, who Trump put in the role to cut rates? Yeah, this was a very hawkish Fed meeting, which we saw especially in the dot plot, which is where the Fed officials lay out their forward-looking interest rate expectations. About half the committee wrote down that they expect the Fed might need to raise rates this year, which is a big shift from March when no one on the Fed's committee saw rate hikes as the right move this year.

2:30We didn't hear too much from Warsh personally about what he thinks the Fed needs to do. The policy statement was very terse. Warsh did not say much about his own views of the Fed's next move in the press conference, and he did not participate in the dot plot. So he is not one of the Fed officials who submitted a forecast for what the central bank's going to do next. He was pretty candid about some of the ways that he plans to move the Fed forward, laying out a lot of plans to convene experts to review different ways that the Fed operates, including how it communicates with the public, how it handles economic data, a whole host of things that seem to be at the top of Warsh's list of priorities.

3:12Matt Grossman:What does that mean for investors? I mean, can we expect more market volatility as investors are flying a little bit more blind? Under Chair Powell, by the time a Fed meeting rolled around, markets had a pretty good idea about what the Fed was likely to do. It wasn't likely that the Fed was going to raise rates without having signaled that beforehand. We'll really have to see how the Fed communicates over the next six weeks. And, of course, some of that is under Chairman Warsh's purview. Some of it isn't because the Fed also has 12 regional reserve bank presidents who don't answer to the Fed in Washington.

3:49So we'll have to see how they communicate. And by the time the July meeting rolls around, we may or may not have a good idea of what exactly is on the table.

3:59Matt Grossman:That was WSJ economics reporter Matt Grossman. Thank you, Matt. Thank you. Markets had a strong reaction to today's Fed decision. Treasury yields rose and stock indexes fell. As you heard from Matt, it was a hawkish meeting, and investors took the emphasis on quote price stability as a sign that the Fed might soon raise interest rates. The Nasdaq fell 1.3 percent, the S &P dropped 1.2 percent, and the Dow was off 1 percent. Elon Musk's SpaceX lost nearly 5 percent today, its first drop since Friday's IPO. In an exclusive interview with The Wall Street Journal, Apple CEO Tim Cook says the company plans to raise prices on its products to offset the surging costs of both memory and storage.

4:43Matt Grossman:There's been big price jumps for those chips, which are needed in the AI data center build-out. Cook said price increases were unavoidable, but he didn't say when the price changes would happen or how big they might be. The journal used projections from research firm Tech Insights to calculate a price tag for the next iPhone. It's the 18 Pro, and it could cost an estimated$1 ,300. Reporter Rolf Winkler explains. This is our math. Basically, if you factor in that the cost of those components in an iPhone 17 Pro have gone from$50 as of last year to$200 this year, and then you gross the thing up for the margins that Apple needs to make, then you're looking at a price increase well over$200 just to maintain their margin.

5:30Matt Grossman:Rolf says this could affect Apple's bottom line. If you're talking about a potentially$200 price increase for the iPhone, there's going to be some people out there that say, you know what, maybe I don't need to upgrade as quickly as I was going to. Maybe I'll keep this phone an extra year. That's bad for Apple's business. We're likely to find out more about the exact price tag in September when the next iPhone is expected. Other price increases, especially for Macs and iPads, could come sooner. Coming up, lawyers for Luigi Mangione set a defense strategy for his state murder trial. More on that, the Iran peace deal, and the next U.S.

6:06Matt Grossman:intelligence chief after the break.

6:12This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18+.

6:41Matt Grossman:Senior U.S. officials today read the text of the U.S.-Iran peace agreement to reporters. It's expected to be signed later this week in Switzerland. As we discussed earlier this week, it would lift the blockades around the Strait of Hormuz and lift U.S. sanctions on Iran's oil sales, letting Iran start selling oil widely. WSJ reporter Lawrence Norman says that could be a huge boost to Iran's economy. The draft included not only waivers on sanctions on Iranian oil, which means that the Iranians can export their oil legally again, But it also included a promise basically to allow the Iranians to repatriate the revenues that they'd earned.

7:24Iran has sold oil, for example, to China, but it's not been able to get its hands on the revenue because of U.S. financial sanctions. And Washington offered to change that, and that is what the critics are focusing on.

7:36Matt Grossman:Critics say the money could help empower the regime and rebuild its military. The Trump administration was under pressure to get a deal done. President Trump today defended the agreement, saying he wants to avoid a, quote, economic catastrophe that could have resulted if the conflict continued. The administration came into negotiations with Iran a year ago, promising to eliminate their nuclear program, their ballistic missile program, and have them behave differently in the region. And Iran is walking away basically being paid to reopen the Strait of Hormuz with no significant hard commitments that it will make on the nuclear program and ballistic missiles.

8:15And that's a pretty tough sell for an administration that spent years bashing President Obama's 2015 nuclear deal.

8:22Matt Grossman:If Iran does comply with U.S. demands to rein in its nuclear program, it could benefit even more financially. with full sanctions relief and access to a$300 billion fund to finance Reconstruction after the war. Officials stress that the Reconstruction plan wouldn't require U.S. funding. To see the full draft of the agreement, along with WSJ analysis, check out the story on WSJ.com. We'll leave a link in the show notes. In other news from the Trump administration, President Trump said on social media that he was delaying the nomination of Jay Clayton to be the next director of national intelligence.

8:55Matt Grossman:His confirmation hearing was scheduled for today. Trump said he was stopping the nomination until Clayton's successor for his current job, U.S. Attorney for the Southern District of New York, is approved. That means Trump's pick for acting intelligence director, Housing Chief Bill Pulte, is set to start in the role on Friday, something lawmakers on both sides of the aisle have loudly objected to. Trump also said he wouldn't sign legislation to reauthorize Section 702 of FISA, a critical spying tool, until Congress passes a contentious GOP voter ID bill. The voting bill doesn't have the 60 votes required to advance in the Senate.

9:31Matt Grossman:And Luigi Mangione, the man accused of killing UnitedHealthcare CEO Brian Thompson, will mount a psychiatric defense. The judge in Mangione's New York state trial said defense lawyers intend to argue that Mangione killed the insurance executive due to an extreme emotional disturbance at the time. If the jury agrees with that argument, it could mean that his murder charge gets downgraded to manslaughter. That comes with a shorter potential prison term. The trial is set to begin September 8th. And that's what's news for this Wednesday afternoon. Today's show is produced by Anthony Bansi with supervising producer Tali Arbel.

10:06Matt Grossman:I'm Alex Osalev for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

10:21Matt Grossman:Have no fear. Chosen Foods is here. to defend your favorite foods from the forces of seedy oils and sketchy ingredients. With cooking oils, salad dressings, and mayo, all powered by the good fats from 100 % pure avocado oil and simple, delicious ingredients. Chosen Foods.